Fall market pressures make feeding culls attractive

Nov 6, 2009

Fall market pressures make feeding culls attractive

For producers on a fall weaning schedule, October and November are typically when cow productivity is reevaluated and cull cows are pulled from the herd. For many producers, marketing culls involves little more than hauling them to the sale as quickly as possible, regardless of the fact that these months represent the lowest point in the yearly cull cow market cycle. However, because cull cow sales can potentially equal 15 to 20 percent annual gross revenue for an operation, it pays to consider feeding cull cows for 90-100 days until the spring upturn in the market. Because of additional pressures on cull market prices this fall, producers with a cheap feed source have even more reason to consider feeding their cull cows and selling next year.

The cull cow market follows a highly predictable annual pattern. According to Dillon Feuz, professor of Agriculture Economics at Utah State University, "Cull cow prices increase from January through about April and then maintain or increase slightly in value through August, and then prices decline rapidly into October. The prices remain seasonally low through November and, then, there is the big unknown. Sometimes they stay low in December and sometimes they increase in December."

Annual low prices in the fall correlate with the large numbers of culls flooding into the market at weaning time. According to data collected by the Livestock Marketing Information Center, at the market low point, November prices are approximately 10 percent below the annual average and approximately 15 percent below February prices.

But in addition to the annual dip in prices this fall, two other factors are currently depressing cull prices. One is the Cooperatives Working Together (CWT) dairy cow buyout, now entering its third round this year. The dairy buyout program purchases cows from dairy farmers opting out of the business and sells them on the cull market, aiming to reduce national milk production and stabilize milk prices. The dairy culls from this third buyout will begin hitting the market this week, and cull prices, already at their seasonal low, could potentially be further dampened by the additional supply.

Overall, the influx of dairy cows into the cull market has had a noticeable impact on prices. According to Troy Applehans, market analyst at CattleFax, as of the second week of October, utility boner prices were running more than $6 per cwt. below 2008 prices at $48.42, down from $55.41 a year ago. Applehans points out that although beef cow slaughter has been down for most of the year, it has come back strong in the past several months, a factor which at least in part explains the decline from last year’s prices.

On a more positive note, the October buyout will only liquidate some 26,000 head of dairy culls compared to the approximate 100,000 and 70,000 head sold in the first and second buyouts, and impact to cull prices this fall will likely not be as severe as it has been with the first two rounds.

The second pressure on this fall’s cull market has been the surplus of cheap pork and poultry available to the consumer, which has been driving down demand for hamburger and depressing trim prices. Applehans points out that 50 percent and 90 percent trim prices are below last year’s level, which is not surprising given the abundance of inexpensive meat choices at the supermarket.

Derrell Peel, extension livestock marketing specialist at the University of Oklahoma, adds that competitive imports, primarily from Australia and New Zealand, have also added to the availability of lean meat and caused prices to soften. In the big picture, the fall market is saturated both at the processing end by dairy culls and at the retail end by other cheap meat products, "All of which is occurring against the backdrop of generally weak beef demand because of the recession," explains Peel.

With these added pressures on fall cull prices, producers have more reasons than usual to consider feeding culls this winter and time their sale with the spring upswing in the market.

Additionally, producers may find feeding culls this winter attractive due to the relatively inexpensive cost of feed, which is down considerably from last year. Successfully retaining culls requires a cheap available feed source to make the program profitable. Applehans elaborates, "In order to work, you have to be able to add cheap cost of gain. In other words, that cost of gain per pound has to be below what you anticipate the selling cost per pound to be." By analyzing input costs in feed, pasture rent, and labor, producers can get a read on how much they would have to make on their culls to earn a profit.

The other side of the cost-of-gain equation is to have cows that are going to gain on the feed you have available. Overly fleshy cows and very old and weak cows are unlikely to put on sufficient gains to make the system profitable. Says Applehans, "I figure a cow has to have about 10 percent of her body weight in compensatory gain potential to work. She has to have potential to gain weight, and do it cost effectively."

Peel adds that producers should also consider health and soundness issues if they are looking for spring premiums. "If they have bad eyes or bad feet, those kind of health factors will bring discounts." Further, producers will want to prevent bruising, injection lesions, and damage that might otherwise compromise value. Culls treated as marketable assets will bring higher premiums.

Profitably feeding culls also requires that producers work within a determinate time frame. Although the cull market typically peaks in late April, Applehans recommends feeding for approximately 100 days, and preferably selling in February while the market is still climbing. The expense of feeding longer, he observes, will begin to outweigh the reward.

In certain circumstances, additional premiums may be available by marketing culls direct to the packer, provided that the producer is selling a truckload lot or is located nearby. Feuz points out that many packers do not take slaughter cows, but those who do are sometimes interested in particular grades of culls which could work in a producer’s favor. Feuz explains, "What I have found is that different cow slaughter plants are looking for different kinds of cows. Some want cows that are fed out, some are looking for lean cows. It’s pretty easy to call and ask what weight and type of cull (they’re) looking for."

For producers with less than a truckload, however, selling to a packer is probably not cost effective. Says Feuz, "Unless you’re close, gooseneck loads go to the sale."

In short, producers considering whether to feed culls through until the spring should evaluate both the cost of feeding and the quality of the cows they intend to sell. Provided one has an economical feed source and cows with the potential to gain, feeding culls is one of the better bets in the cattle business, offering "the most consistent return on a retained ownership program that CattleFax has analyzed," Applehans reports. "Within the data we’ve looked at, 28 out of 28 years has been profitable, and average profit out of those years has been near $54 per head."

As of now, nothing is projected to dampen the seasonal spring upswing in cull prices. By early 2010, the market will also have had some time to absorb the excess supply of dairy culls and the pork and poultry that is currently flooding the market, potentially strengthening prices. Jim Robb, director of the Livestock Marketing Information Center, is optimistic: "We think (feeding culls) will work as well as normal, and maybe better than normal," he remarks.

Although it is conceivable there will be another dairy buyout in the spring, CWT does not anticipate one at this time. But according to Peel, even a spring buyout need not have a profound effect on producers selling culls. "It is a very precise two- to three-week period when the spike in supply occurs," reports Peel. Should another buyout be scheduled, producers should find out when the dairy cows will be hitting the market and time selling their culls before or after the market influx. "Just pay attention," Peel advises, "and know when it happens." — Andy Rieber, WLJ Correspondent